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How to protect property rental income – Part One

August 27, 2017

Tips from property tax accountants Optimise Accountants on how to protect property rental income

By Louise Misiewicz

Do you manage or own a property-related business?

How can you protect your property rental income?

I was talking to a new property investor client on the phone last week, and one of their main concerns was how to protect their property rental income.

As a leading property tax accountant, my team and I spend much of our time with buy-to-let landlord clients ensuring that their property portfolios are profitable, and protected from unnecessary risks such as unforeseen taxation, industry legislation, and lack of tax planning and wealth management measures being taken.

I’ve decided to post a series of articles on our property tax accountancy blog here, outlining the steps and measures that property investors can take to protect and maximise their property rental income.

In Part One, I’ll be focusing on areas of risk where landlords can lose revenue if not maintained properly, meaning they reduce their amount of property rental income.

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I advised my property investor client on some of the basic areas of risk to consider to ensure that a property business is enjoying the highest possible level of rental income, including:

Record-keeping:

Keeping accurate and up-to-date records for your property business is essential. Incorrectly-kept records can mean that information provided to HMRC is not accurate and could result in receipts being overlooked, expenditure and tax relief being claimed incorrectly, and 
property disposals being overlooked.

Property income receipts:

As I advised my landlord client over the phone, all income except capital receipts arising from an interest in land are part of the property rental business, and should be treated in this way.

A casual or one-off letting is still treated as arising from a property rental business, so property investors need to be aware of this when ascertaining their property rental income. As with any other kind of business, property income can include payments-in-kind as well as cash-based receipts. 


Profits or losses from overseas properties and furnished holiday lettings need to be treated separately for tax purposes, and I recommend gaining professional property tax advice for these areas. 

Properties that are let rent-free (or at less than market rate) should be considered separately, to ensure that any related expenses are restricted appropriately.

For all other rented properties, receipts and expenses can be combined so that expenses on one property can be deducted from the receipts on another. My new client was unaware of this when we spoke.

Deductions and expenses:

Property rental business expenses must be incurred wholly and exclusively for business purposes and not be of a capital nature for a property investor to be able to claim tax relief against them. 

Difficulties may arise where the cost has a dual purpose, such as partly private and partly business expense.

A deduction can only be made for the business part where a definite part or proportion satisfies the wholly and exclusively test. Similarly, difficulties may also arise in distinguishing between revenue and capital expenditure. Capital expenses are generally not deductible in collating property rental business profits.

Reliefs and allowances:

As I advised my client, capital allowances cannot be claimed on plant and machinery in a dwelling house unless it is a furnished holiday let. It’s worth reviewing the allowances in full for your property business every year with a property tax specialist, to ensure you’re claiming your full allowance entitlement.

For an ordinary property business (not a furnished holiday letting business) plant and machinery allowances cannot be claimed on furniture, furnishings or fixtures for use in a dwelling house.

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General:

There are particular issues relating to property rental income that affect the completion of the property pages of the Income Tax Self Assessment return.

For example, any rental business loss is automatically carried forward and set off against rental business profits of the following year. Rental business losses cannot be set against general income except in limited circumstances.

From April 2011, furnished holiday letting losses can now be carried forward and set off against furnished holiday lettings profits of the same business as we outlined in our previous article.

Losses made in one rental business cannot be carried across to any other rental business that the property investor carries on at the same time in a different legal capacity.

These considerations were part of the phone call I had with my landlord client, and formed part of a larger and more detailed conversation.

Next week, Part Two of this blog series will continue with a property rental income checklist for investors to consider.

Other articles I’ve written around the area of protecting property rental income which would make for useful and informative reading for buy-to-let property landlords include:

Allowable costs within a property business after the Budget

How to mitigate Capital Gains Tax when selling property

Minimise CGT and income tax liabilities using a Deed of Trust

Need accountancy services from a property tax specialist?

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